Why are the Jews called the chosen people?
God sovereignly designated Israel as His peculiar treasure above all people, conditioned on their obedience to His voice and covenant. This unique role was to prepare them to bring all nations to the knowledge of Israel's God. Hence they are called chosen, favored, and covenant people.
Les explains that in Exodus 19, after Israel came out of Egypt under Moses and gathered at Mount Sinai, God told Moses to tell the children of Israel: 'If you will obey My voice indeed and keep My covenant, then you shall be a peculiar treasure unto Me above all people.' Les points out this was conditional, left up to their will. God was sovereignly setting Israel aside and above all other nations, designating this little nation for a unique role in His overall program for the whole human race. That is why they are called the chosen people, the favored nation, the covenant people. Les notes that while God would deal with the Jew only for a time, He had not blanked out the Gentile; the purpose was to prepare this favored, covenant nation to bring all the other nations of the world to a knowledge of Israel's God.
Now therefore, if ye will obey my voice indeed, and keep my covenant, then ye shall be a peculiar treasure unto me above all people: for all the earth is mine: